Last December, the Canadian government announced that the review
threshold under the Investment Canada Act (Act) for
investments by state-owned enterprises (SOEs) would be amended and,
as a result, would not increase in the same way that non-SOE
investments would.1 At that time, the government also
introduced revised guidelines for the review of SOE investments,
including its position that acquisitions of control by SOEs of a
Canadian oil sands business will be found to be of "net
benefit to Canada" on an exceptional basis only. These new SOE
specific measures necessitate a change in the law to allow foreign
investors to determine whether they are SOEs for purposes of the
Act and therefore, whether and how their investments will be
treated under the Act.

Consistent with its message that investments by SOEs are not the
same as other investments, the Canadian government introduced a
federal budget bill (Bill C-60)2 containing proposed
amendments to the Act that will significantly impact foreign
investors whom the Canadian government considers as SOEs. Among
other things, these amendments introduce a statutory definition of
"SOE" that includes the potentially broad concept of
foreign government "influence." Furthermore, the Minister
of Industry will be given broad powers to declare an entity to be
an SOE and to declare an otherwise non-reviewable acquisition by an
SOE to be subject to review. The impact of these amendments is that
if the Minister determines that an investor is an SOE and it is
acquiring control of a Canadian business, then the applicable
review threshold is the lower SOE-specific threshold and not the
significantly higher threshold for non-SOE investments.

Guidance in this area is welcome and necessary. However, the
proposed amendments introduce potentially broad concepts and
elements of uncertainty that will likely, without further clarity
from the government, place a heavy burden on parties assessing and
addressing regulatory risk should these amendments become law.
Below we outline the proposed amendments and their impact on the
foreign investors that may be caught by the new SOE regime.

Lower review threshold for investments by
SOEs

Last December, the government announced that the review
threshold under the Act for investments by SOEs would be amended
and, as a result, would not increase in the same way that non-SOE
investments would. The proposed amendments contained in Bill C-60
include the increased review threshold from the current asset
value-based threshold to, initially, $600 million "enterprise
value" for investors from World Trade Organization member
nations. Thereafter, it is proposed that the threshold be increased
to $800 million and $1 billion.3 For SOE investments,
the existing $344 million threshold in asset value would
apply.4

Broad definition of "state-owned
enterprise"

The proposed amendments define "state-owned
enterprise" as:

the government of a foreign state, whether federal, state or
local, or an agency of such a government;

an entity that is controlled or influenced, directly or
indirectly, by a government or agency referred to in paragraph (a);
or

an individual who is acting under the direction of a government
or agency referred to in paragraph (a) or who is acting under the
influence, directly or indirectly, of such a government or
agency.

No guidance is provided as to the meaning or breadth of the
concept of direct or indirect influence.

Minister has (retroactive) power to determine that an
entity is controlled in fact by a SOE

The Act applies when a "non-Canadian" establishes a
new Canadian business or acquires control of an existing Canadian
business.5 It contains a number of tests and
presumptions to determine whether an entity is a
"Canadian" (and therefore not a
"non-Canadian"). The proposed amendments in Bill C-60
provide that, even if an entity qualifies as a "Canadian"
by virtue of the Act's rules to determine "Canadian"
status, the Minister may nevertheless determine that the entity is
not "Canadian" if he determines that the entity is
controlled in fact by a SOE. The impact of this amendment is that
it broadens the reach of the Act where a foreign state is involved.
For example, a determination by the Minister that an investor that
would otherwise be "Canadian" is an SOE may give the
Canadian government the power to challenge the investment under the
national security review regime.

Similarly, the Minister can make a determination that a foreign
investor is controlled in fact by a SOE. The impact of this
amendment is that where the Minister determines that a foreign
investor is controlled by a SOE and the investor is making an
acquisition of control of a Canadian business, then the applicable
review threshold is the lower SOE-specific threshold and not the
significantly higher threshold for non-SOE investments.

The proposed amendments allow the Minister to make the above
determinations based on "any information...made available to
the Minister." Further, if the entity does not provide
information that the Minister has requested and considers necessary
to make the determination, the Minister "may declare"
that the entity is controlled in fact by a SOE. Finally, the
Minister's determinations may be made retroactively.

This power that will be provided to the Minister of Industry
(and that is similar to the power given to the Minister of Canadian
Heritage in respect of cultural businesses) will give rise to
considerable uncertainty for any transaction where a foreign state
is involved, however indirect and tangential such involvement may
be.

Minister has (retroactive) power to determine whether
there has been an acquisition of control in fact by a
SOE

Subject to certain exemptions, where a transaction involves the
"acquisition of control" of a Canadian business by a
non-Canadian and the acquired business exceeds certain financial
thresholds, the transaction may be reviewable by Industry Canada.
The Act contains detailed deeming and presumption provisions to
determine "acquisition of control." Generally speaking, a
minority investment is not an "acquisition of control"
under these provisions and, as such, the investment would not be
reviewable under the Act. However, notwithstanding these
provisions, Bill C-60 will allow the Minister to make a
determination that there has been an "acquisition of control
in fact" by a SOE. The impact of this is that an otherwise
non-reviewable type of acquisition may be subject to review where
it is made by a SOE and the lower SOE-specific review threshold is
met.

In determining whether a SOE has made an "acquisition of
control in fact", the Minister can consider "any
information...made available" to him and if the SOE does not
provide the information that he has requested to make the
determination, the Minister "may declare" that there has
been an acquisition of control in fact by a SOE. The Minister's
determination may be made retroactively.

Again, any indirect or tangential involvement by a foreign state
will potentially give rise to uncertainty. Because of the
retroactive powers that the Minister of Industry will have to
review transactions, parties will be well advised to consider the
feasibility of pre-emptive consultation with the Minister and his
staff.

Extension of time for national security
reviews

The Canadian government has the power to review all investments
by non-Canadians on national security grounds. In addition to the
SOE-specific amendments discussed above, the proposed amendments in
Bill C-60 extend the time in which the Minister of Industry
conducts national security reviews of proposed foreign
investments.

Following the recent decision of the Supreme Court of Canada holding that Competition Bureau officers are immune from being forced to testify on discovery in private actions under the Competition Act (see article), the Bureau has issued a statement of its position on "Requests for information from private parties in proceedings under section 36 of the Competition Act".

In March, we reported that the Competition Bureau of Canada (Bureau) was soliciting comments on a draft bulletin concerning requests for disclosure by plaintiffs in follow-on competition law class actions.

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